The Australian way to deal with the global financial crisis
The Financial Times reports that "Australia tells 11m workers to take a break" - http://www.ft.com/cms/s/0/ab142524-c26e-11dd-a350-000077b07658.html
This strategy is not without peril but it may work for less indebted societies. When you think about it, if you want the economy to get a boost from consumer spending, give people more incentives to spend.
Being on vacation is probably a more relaxed environment to entice spending. This too may work in countries with high savings rates particularly in Western Europe where people are generally more "tight" with their cash. Tell them to do it the Australian way, go on vacation and spend. US consumers however, are probably getting the end of the stick; no extra vacation days and/or not much cash left. The US needs to find other strategies to get out of the slump.
Another good explanation of the cause of the financial mess
Marketplace Senior Editor Paddy Hirsch gives a great explanation of the CDOs (collateralized debt obligations) those financial instruments that got us into this financial mess.
The US markets came back from the Thanksgiving week-end to find a sort of "morning-after" surprise courtesy of the National Bureau of Economic Research - Thank you very much...
The ever-so genuine institution charged with determining the onset of a recession (as well as its end) said on Monday, that "the current downturn met its definition of a recession", exactly one year after the fact. The NBER of course did not say how long the recession might last, but that the stock market reflected pessimism. To add to such profound wisdom, the U.S. manufacturing activity fell to its lowest level in 26 years and eventually sending the Dow Jones Industrial Average down by 679 points - 7.7% for the day. As of today, we're still trying to recover from that one day downturn with the Dow still down over 2% for the week. This week too, the daily price movements between High & Low exceeded 5% intraday, Tuesday being the only day slightly below 5% (4.92%). Market volatility remains sky high at about 60% (more on risk and volatility below).
And let's not forget, employment numbers were atrocious this morning. U.S. employers axed 533,000 jobs from non-farm payrolls in November, the worst since 1974. With an unemployment rate of 6.7% the now officially year-old recession reflects an economy screaming for additional perhaps more dramatic government action to restore growth. And yet, the US markets had a late rally ending the day up over 3% (Dow) and 3.65% (S&P 500). Presumably, bad news was already priced in from the weekly jobless claims numbers and as is often the case, the market discounts bad news before the fact and reverses its course when the news is actually out. But with continued volatility at these levels and further bleak news that may not have translated yet into companies earnings, it is wise to stay defensive. As one trader recently put it: "Stay small and be fast, or stay out of the market". Particularly when possible deflationary scenarios are looming, cash still remains king.
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